Text of Statement to Court Describing 6 Felonies

Published: April 25, 1990

Following is the text of the allocution, or statement to the court, by Michael R. Milken yesterday describing the six felonies to which he pleaded guilty:

I was the founder and head of the High Yield and Convertible Securities Department at Drexel. In pioneering the creation of new instruments for the financing of companies, most of which did not have access to the capital markets because they did not have investment-grade ratings, and in making markets in such securities, we operated under unique, highly demanding, and intensely competitive conditions.

But I do not cite these conditions as an excuse for not conforming to all of the laws that governed our highly regulated business. I am here today because in connection with some transactions, I transgressed certain of the laws and regulations that govern our industry. I was wrong in doing so and knew that at the time and I am pleading guilty to these offenses.

One of the accounts we did business with was the Boesky organization, which also did business with many other firms. Drexel did some financings for and trading with the Boesky firm, but Drexel's business with the Boesky organization never approached 1 percent of the business of our department.

He traded in stocks; I traded primarily in bonds, or their equivalent. But because he was a major factor in the securities markets, he had the potential to become a more significant account. We were not social friends and had little in common. His philosophy of business was different from mine.

The relationship started as an arm's length and correct one. Unfortunately, however, certain of our transactions involved reciprocal accommodations, some of which violated the law, including those that are referred to in this allocution.

Not to Lose Money

In 1984, our department had purchased some securities of Fischbach, a company in which Victor Posner had an interest. Drexel had provided financing to several other companies which Mr. Posner had an interest in.

In early 1984, Mr. Posner publicly announced that he intended to acquire Fischbach. Boesky was familiar with the Fischbach situation and wanted to purchase Fischbach securities. I encouraged him to do so. I do not remember exactly what I told him almost six years ago, but I indicated to him that he would not lose money.

The Boesky organization began buying Fischbach securities and eventually bought over 10 percent of Fischbach including securities that had been owned by Drexel. Over the next months, he called me incessantly to complain that the price of the stock was dropping, that Drexel was responsible for his losses, that my comments to him were guarantees against loss and that he expected us to make good.

I assured him that Drexel would make good on his losses. These assurances were not recorded on the books of Drexel and I did not expect that they would be reflected in any Schedule 13-D's filed by the Boesky organization, and, in fact they were not. Thus, I assisted in the failure to file an accurate 13-D. This was wrong and I accept responsibility for it. This is the basis for Count 2 and is one of the overt acts in Count 1.

The Seller's Identity

As for Count 3 and the second overt act of the conspiracy count, in the fall of 1984, a client of Drexel, Golden Nugget, wanted to sell a substantial amount of MCA stock. I wanted the shares to hit the market in a way that would not identify our client as the seller and adversely affect the price that it might receive.

So I turned to Boesky, whose business it was to buy and sell large amounts of stock and who I knew had an interest in entertainment company stocks, including MCA. I told a Drexel employee to ask him to buy the blocks of MCA shares as they became available from Drexel's client.

I did not tell the client how I was disposing of the stock. Drexel crossed the blocks between its client and the Boesky organization which subsequently resold most of these shares into the market. When Boesky complained that he had lost money on his initial purchases of MCA, I promised that we would make up any losses the Boesky organization suffered on its purchases and sales and thereafter it bought more MCA stock from Drexel acting on behalf of our client.

This promise was not recorded on Drexel's books nor made public, and it was wrong not to do so. It was my intent that the block sales would enable our client to receive a better price than it might have obtained if I had not agreed that Drexel would make up the Boesky organization's losses on the MCA stock.

Boesky's Request

In July 1985, the Boesky organization asked Drexel to purchase approximately one million shares of stock in Helmerich & Payne. The Boesky organization agreed that it would repurchase this stock in the future and promised that it would make up any losses Drexel incurred while holding this stock.

Although I was not involved in the purchase of these securities, I later learned of this understanding. I approved this understanding. I also gave instructions to sell the stock back.